It's Time For A Real Discussion About Antitrust

I write about the intersection of policy and tech, focusing on Europe.

Like many institutions, antitrust was invented for the twentieth century Fordist economy. And so it shouldn’t come as a surprise that shifting to the digital economy calls for a radical upgrade.

EU Commissioner Margrethe Vestager holds a press conference on a Competition Case involving Google Android at the European Commission building in Brussels on Wednesday, July 18, 2018. (AP Photo/Olivier Matthys)

But any antitrust discussion needs to take into account one simple law that makes it easy to understand the digital economy: With the rise of computers and networks, there’s now more power outside organizations than inside them. That’s because billions of individuals are now equipped with ever increasing computing power and are constantly connected to one another through vast networks.

This power shift radically transforms the rules of engagement for companies competing on any given market. In the past, you reached a dominant position by concentrating power within your organization: you’d invest in tangible assets, hire more employees, patent cutting-edge technology, invest in a valuable brand. Now that power has moved from the inside to the outside, companies become powerful by harnessing that outside power and using it to generate growth and, eventually, profits. At the heart of every tech company’s business model are features that are all about bringing these connected individuals from outside to inside the value chain—data collection, orchestrating peer-to-peer interactions and utilizing a flexible workforce.

In the past, concentrating power on the inside meant that corporations confronted the difficulties found in trying to expand large organizations. With diminishing returns to scale, it was rational for dominant firms to focus on protecting their position rather than conquering a larger market share—an equation that explains why most markets were dominated by three competing firms of roughly the same size rather than by a single one that had defeated all others. In their efforts to position themselves for the long term, those firms designed distinctive value chains so as to maximize their market power in the presence of strong competitors. Antitrust as we know it was designed to deal with that situation.

But now that there’s more power on the outside, we need to reconsider what antitrust is about. Because the strategy of tech companies is all about harnessing the power of connected individuals, they’re blessed with a unique, distinctive feature: increasing returns to scale, which in turn make it possible for them to conquer market shares that were unimaginable in a pre-digital world.

The problem is that if we look at this using the lens of the past, we’ll see the continuation of an existing trend: firms are growing even larger; consumers are supposedly hurt in an unprecedented way; and so we should protect these consumers by curbing the power of tech companies who will soon gobble us all.

But what if that is really just a big misunderstanding? Why empower consumers if they already have more power than the firms themselves? Isn’t it time for antitrust to focus on the other sides of those companies’ business—starting with facilitating access to engineering talent (for example by banning non-compete clauses) and capital markets (by allocating more money to venture capital as an asset class and pushing in favor of better exits)? And shouldn’t we focus more on workers than consumers, since consumers’ demands are inflicting an ever-growing pressure on largely disempowered workers in a growing, pan-industrial version of the infamous “Wal-Mart Effect”?

Antitrust doesn’t need to focus on breaking up tech firms when in fact most of their power is found in the hands of their users. While we could force a Fordist corporation to divest assets that are found on its balance sheet, it is an entirely different matter to force a tech company to give up its users. These users are already able to switch to the competition in an instant, as they’ve demonstrated many times in the past (remember Yahoo?). Also, if we give users even more power using the antitrust principles of the past, we’ll only be enabling the entrenched companies who can already harness that power at scale. Perhaps even worse, we’ll be taking away leverage from those who need it most in the current age: workers and upstart competitors.

I work at The Family, an investment firm supporting ambitious tech entrepreneurs in Europe. My 2018 book "Hedge" discusses the urgent need to invent a new Safety Net for our more digital economy. I bring my senior policy experience to my work as a tech investor.